Participants typically use markets to facilitate the exchange of products and services. Exchanges or trading facilities assist in developing the organizational structure of the markets to meet the needs of participants, other traders, and the economic society as a whole. For instance, securities or derivatives are exemplary types of products that are traded publicly at many of the trading facilities throughout the world. A type of security or derivative, referred to generally as “options,” convey certain rights to buy or sell an underlying asset, stock, commodity, or other security at a fixed price for a specific period of time, until expiration for an American-style option or at expiration for a European-style option. Currently, all options that trade on U.S. securities exchanges are issued, guaranteed, and cleared by the Options Clearing Corporation (OCC). OCC is a registered clearing corporation with the Securities and Exchange Commission (SEC). SEC is a government commission created by Congress to regulate the U.S. securities exchanges and protect investors.
According to the above example, participants such as members of the trading facilities can trade options by submitting agency buy and sell orders to a trading facility, referred to as “order flow.” Opposite to the buy and sell orders are typically market makers, specialists, or designated primary market makers (DPMs). Market makers provide liquidity in securities trading by risking their own capital for proprietary trading. Specialists and DPMs are similar to market makers except that they are allowed to represent orders from the public or participants, and may have other additional obligations and participation rights. Although market makers, specialists, or designated primary market makers (DPMs) can play different roles in the trading process they will be collectively referred to hereinafter as “market makers.”
Typically, participants and market makers can trade their products at a trading facility by open outcry. However, trading facilities are also utilizing current technology to develop electronic trading systems. In an exemplary electronic trading system a participant submits buy and sell orders for automatic execution at an exchange or trading facility. For example, logged-on market makers can be made eligible to trade the incoming orders. In this example, once the electronic trading begins the market maker quotes are typically recorded in the automated and computer-based trading system, and matched up automatically with orders that enter the execution system electronically. However, unlike manual-style trading, this exemplary trading system and other electronic or automatic trading systems do not allow a participant to participate in trades resulting from their own generated order flow.
Thus, there is a need for an electronic or automatic execution system that enables participants who submit buy orders or sell orders or both to participate in trades resulting from that order flow.